Warning preceded budget shortfall

5 years ago, Strayhorn said tax overhaul would prove costly.

By Gary Scharrergscharrer@express-news.net :
January 16, 2011

Carole Keeton Strayhorn told Gov. Rick Perry in 2006 when she, Chris Bell (left) and Kinky Friedman were running against him that he was writing Texas' "largest hot check" ever.

AUSTIN — Comptroller Carole Keeton Strayhorn didn't win friends five years ago when she warned Gov. Rick Perry and state lawmakers they were writing the “largest hot check in Texas history” during a tax overhaul that resulted in lower property taxes and a revised business tax.

Strayhorn told them their plan would fall about $23 billion short over a five-year period. Five years later, state leaders are staring at an estimated budget shortfall of nearly $27 billion.

The nation's economic collapse three years ago contributed to some of the state's revenue troubles, but the biggest problem is that the new business tax did not generate enough money to pay for the school property tax cut, Strayhorn said Friday.

“I absolutely knew I was telling them straight up as best as I knew,” the former comptroller said. “I knew it would be awhile before you would see the results.”

At the time, Perry rejected Strayhorn's warning — saying she underestimated the tax reform and ignored economic growth from property tax cuts.

He also said at the time: “Future legislators are going to have the opportunity to be working with some numbers that are more current than what they're working at today — and some honest numbers.”

The governor's office declined to comment about the accuracy of Strayhorn's April 2006 warning.

Perry and Strayhorn had become political rivals by May 2006 as she was running against him in the gubernatorial election.

“You can dislike someone. You may not agree with my philosophy, but you cannot deny facts, and you cannot deny numbers. When you are spending more money than you are taking in — and that's precisely what happened here — you will create a horrific, painful time for everybody,” said Strayhorn, adding she does not like “to Monday-morning quarterback.”

At the time, Dewhurst called huge budget shortfall projections “hypothetical and speculative.”

He now says he knew that revenue projections from the revised business franchise tax “were inflated” and told Senate members in closed door caucus meetings at the time that the business tax would not perform as advertised “and that we were going to create a structural funding deficit in state government.” But Dewhurst said he also believed at the time that “we would grow out of it by now.”

He blames the nation's economic collapse in 2008 for contributing to the state's projected budget shortfall today.

Perry spokeswoman Katherine Cesinger noted the “Texas economy continues to grow steadily ahead of the nation, and the comptroller's biennial revenue estimate, as expected, is also reflective of the national recession's lingering impact on state revenue.”

The projected shortfall reflects the amount of revenue needed to maintain current services, including the cost of educating an additional 170,000 school children over the next two years.

Perry, however, does not address the cost of current services.

“I think we have a budget of $76.5 billion, and we're going to live with that. It's only a budget hole when somebody has wished that they had more money,” the governor said last week.

Strayhorn said her frequent visits with the legendary Bob Bullock put a reverberating message in her mind: “Don't overshoot the runway,” the late comptroller and lieutenant governor told her.

Strayhorn said she relied on expert staff economists and made sure her projections were independent of politics.

“That doesn't mean you are the most popular sheriff in town,” said Strayhorn, who today volunteers at two non-profit groups — “Austinites for Action,” which tries to increase voter participation in local elections; and “Our Texas Grandchildren Foundation,” which tries to improve conditions for foster children.

“It's a good feeling that I was straight up. What I do not feel good with is looking out here in a state where everything ought to be about education, education, education,” Strayhorn said.

Cuts to education are expected to help close the budget shortfall without a tax increase.